How to estimate the value of a family-owned business?

The first method, called Adjusted Net Asset Value (Actif Net Corrigé) or Intrinsic Value (Valeur Intrinsèque), is calculated quite simply:

• Equity of the company: capital, reserves, retained earnings;

• Increased by latent capital gains across all assets: real estate, inventory, machinery, receivables, etc. It is therefore necessary to calculate the difference between the actual market value of these assets and their book value, which is often already reduced by years of depreciation. To establish the actual or market value, it can be useful to obtain an expert opinion.

To determine a transfer value, one can add the value of intangible assets (goodwill). This element is, of course, subjective and often the subject of fierce debate.

This method is widely used in cases of business liquidation. Taken in isolation, it is not particularly relevant for a share sale (cession de parts sociales), as the buyer generally wishes to continue operations rather than sell off the assets.

Account must be taken of the deferred tax liability (latence fiscale) on latent capital gains, as tax will be due upon liquidation or sale of assets. In a share sale (where gains are non-taxable for individual sellers in Belgium), a savvy buyer will factor this deferred tax liability into price negotiations, since they inherit this future cost by acquiring the company.

Secondly, one can highlight methods based on the company's yield or return on investment.

Numerous variations of this approach exist. The most theoretically sound method is undoubtedly the Discounted Cash Flow (DCF) method. In practice, however, this method is rarely used for SMEs because of its complexity.

For family SMEs, the following method is the most common: $N \times \text{EBITDA} + \text{Net Cash}$ (where EBITDA = operating profit + depreciation/amortization, and Net Cash = cash & cash equivalents – financial debt).

Several points to note:

• The multiple $N$ can vary depending on the sector, company growth, future prospects, and more. It is a key point of negotiation between seller and buyer. Generally, a multiple of 4 or 5 is used, though it is not uncommon to see significantly higher multiples when strong growth prospects are present.

• Mixed valuation methods: For SMEs, hybrid methods combining the two approaches described above are frequently used. Indeed, goodwill can be calculated as a multiple of earnings added directly to the Adjusted Net Asset Value.

Beyond these formulas lies operational practice. Most acquisition transactions for family SMEs are financed through bank loans. The value of the company will therefore be determined by the availability and feasibility of obtaining leverage.

It is thus possible to form a realistic estimate of a company's transaction value, keeping in mind that banks generally require:

1. 25% to 30% equity contribution (effort propre);

2. Financing term of maximum 7 years;

3. Historically stable cash flow capable of covering debt service with a 20% to 30% safety margin (debt service coverage).

Of course, many other factors influence company value, notably the legal and financial structuring of the transaction. Ultimately, the final price paid is not always a direct reflection of objective intrinsic value: much depends on how negotiations are conducted. A solid, well-substantiated valuation can, however, frequently "make all the difference."

Illustration: Clou